Comparing and Contrasting International Business …shura.shu.ac.uk/12185/1/Crone - AIB-UKI 2015 MMU (version...discrete services offshoring activities. Journal of International Business

Comparing and Contrasting International Business and Economic Geography Perspectives on the ‘Place, Space and Organisation’ of Service Offshoring

CRONE, Michael <http://orcid.org/0000-0001-9744-1918>

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CRONE, Michael (2015). Comparing and Contrasting International Business and Economic Geography Perspectives on the ‘Place, Space and Organisation’ of Service Offshoring. In: Academy of International Business (UK & Ireland Chapter) 42nd Annual Conference. Special track on 'Geographies of Cities: Rescaling International Business', Manchester Metropolitan University, 16-18 April 2015. (Unpublished)

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Comparing and Contrasting International Business and Economic Geography

Perspectives on the ‘Place, Space and Organisation’ of Service Offshoring

Mike Crone

Sheffield Business School

([email protected])

Positioning , rationale and purpose

• The paper contributes to an ongoing conversation between IB scholars and economic geographers - renewed momentum in recent years.

• Service offshoring as an important contemporary IB phenomenon that has

received attention from scholars in both fields – hitherto largely disconnected

• Compares the perspectives and analytical insights of these two disciplines on

geographic and organisational aspects of ‘service offshoring’ – aka

‘place-space-organisation’ (Beugelsdijk, McCann & Mudambi, 2010)

• A conceptual ‘ground-clearing’ exercise – a necessary step towards an

enhanced, inter-disciplinary understanding of this important phenomenon

Comparing the two disciplines

International Business

• "IB scholars explore how and why cross-national differences matter and how businesses are able to transcend national (and other) differences..." (Meyer, 2013, p.10)

• "A central theme in IB studies… is the search for ‘universal truths’ or general principles.

This sits alongside a second IB theme, that

locations or places vary and context matters…" (Collinson et al, 2013)

• A core research theme: the activities,

strategies, structures and decision-making

processes of multinational enterprises (but an

increasingly diverse research agenda)

Economic Geography

• “The discipline’s goal has long been to offer multi-faceted explanations for economic processes – growth and prosperity as well as

crises and decline – manifested across territories at various scales…

• geographers study geographically-specific factors that shape economic processes and

identify key agents (incl. firms) and drivers that

prompt uneven territorial development…” (Aoyama et al., 2010, p.1)

• economic geographers are interested in, and

concerned to explain, unique, one-of-a-kind outcomes for particular places, which are

viewed as a consequence of the interplay

between wider trans-local processes and

particular local conditions

Service offshoring

• A significant phenomenon attracting widespread attention:

• trada ilit re olutio / glo al shift i ser i es UNCTAD, 2004

• se o d glo al shift Br so , 200

• e t i dustrial re olutio Bli der, 200

• trade i tasks as well as trade in goods (Grossman/Rossi-Hansberg, 2008)

• One possible definition of service offshoring (though potentially problematic):

• the relocation a fir of ertai hite- ollar ser i e a ti ities, pro esses, or tasks fro o e country (typically – but not always - the fir s ho e ou tr to a other ou tr ofte - but

not always - a less developed country)

• T o o o l re og ised go er a e odels: captive offshoring versus offshoring outsourcing

• Hence involves both firm boundary and geographical location decisions (Contractor et al, 2010)

Source: Gary Gereffi & Karina Fernandez-Stark (2010) The Offshore Services Global Value Chain.

Center on Globalization, Governance & Competitiveness, Duke University.

Exemplar empirical studies of service offshoring in IB & EG

International Business• Bunyaratavej, K., Hahn, E. D., & Doh, J. P. (2007).

International offshoring of services: A parity study.

Journal of International Management, 13(1), 7–21.

• Doh, J. P., Bunyaratavej, K., & Hahn, E. D. (2008).

Separable but not equal: The location determinants of

discrete services offshoring activities. Journal of

International Business Studies, 40(6), 926–943

• Hahn, E. D., & Bunyaratavej, K. (2010). Services

cultural alignment in offshoring: The impact of cultural

dimensions on offshoring location choices. Journal of

Operations Management, 28(3), 186–193.

Economic Geography• Hardy, J., Sass, M., & Fifekova, M. P. (2011). Impacts

of horizontal and vertical foreign investment in

business services: the experience of Hungary,

Slovakia and the Czech Republic. European Urban

and Regional Studies, 18(4), 427–443.

• Kleibert, J. M. (2014). Strategic coupling in “next wave cities”: Local institutional actors and the offshore service sector in the Philippines. Singapore

Journal of Tropical Geography, 35(2), 245–260.

• Micek, G., Dzialek, J., & Górecki, J. (2011). The

Discourse and Realities of Offshore Business

Services to Kraków. European Planning Studies,

19(9), 1651–1668.

Four focal themes relating to the conceptualisation of ‘space, place and organisation’ in service offshoring

1. Conceptualising ‘organisation’: theorising the firm, extended network contexts and intra-firm network relations;

2. The geographical unit of analysis and issues of spatial scale

3. Conceptualising location and the firm-location ‘nexus’

4. Conceptualising ‘distance’ and its influence on firm behaviour

Note: Theme 1 is only briefly considered in this presentation, Themes 2 & 3 are

the main focus, Theme 4 is not considered (due to time constraints).

Theme1. Conceptualising ‘organisation’: (a) theorising the firm, (b) intra-firm network relations and (c) extended network contexts

a) The firm (MNE/TNC) is under-theorised in EG compared to IB

b) The subsidiary management stream in IB offers valuable insights on intra-firm network relations (a

weakness of EG) – although there seems to have been little specific attention to service offshoring

in the SM stream so far

c) However, the IB literature has tended to focus on explaining discreet location decisions for specific

offshore projects, thereby analysing service offshoring in isolation from its extended network

context.

The Global Production Networks (GPN) perspective from EG and the related GVC approach in

de elop e t studies hi h ha e si ilarities to Bu kle s glo al fa tor o ept fo us ore attention to the extended network contexts of TNC activity and may offer additional insights on

service offshoring

Theme 2. The geographical unit of analysis and issues of spatial scale

• IB is primarily focused on the national scale (Beugelsdijk and Mudambi, 2013), although

regionalization, sub-national clusters and (more recently) cities have had some attention

– in Bunyaratevej et al.'s (2008) study of the offshore services location choices of US MNEs, indicators of location-

specific advantages and factor costs are only considered at the country level, even for countries like India that are

clearly characterised by huge sub-national variations in key explanatory variables

• In contrast, a concern for the operation of economic process at and across various spatial scales is a

central element in contemporary EG

– in the GPN approach, there has been explicit recognition of the need to incorporate ulti-scalar a al sis, since

the economic processes that shape the fortunes of particular places operate at a variety of spatial scales from the

local (e.g. city-level), regional (sub-national) and national (country-level) to the macro-regio al regio al i IB and global (Dicken, 2011; Henderson et al., 2002).

• Neither country-level analysis nor the regionalization perspectives are in themselves likely to be

suffi ie t to ake se se of the spa e, pla e a d orga izatio of ser i e offshori g

The relevance of a multi-scalar perspective in analysing the global footprint of an

outsourced contact centre specialist

APAC NAM CALA EMEA

Ownership/control

Outsourcing

Customer contact

Corporate/regional HQ

Service delivery centre

Client organisation

United States

Northern

Ireland

National market

and regulations

‘egio alised structure

Sub-national

location factors

The relevance of sub-national distance in service offshoring location decisions:Stylised example of a UK-based MNE decoupling and offshoring a service task

Country C

(e.g. India)

Country B

(e.g. Poland)

Country A (e.g. UK)

Economic distance

(e.g. total operating costs)

D1D2 D4

EA

EB

EC

Note: Partly inspired by Figs 1 & 2 in Beugelsdijk & Mudambi (2013)

α β

Nearshore Farshore

OFFSHORING OPTIONSBeginning with a country-level

perspective (typical in IB):

• Offshoring options include

earshore here, Pola d a d farshore here, I dia .

• Bet ee cou tr dista ces ,

including economic distance (cost

differentials α and β) and other

types of distance ( and ), may

influence the location choice

• Fir s a ha e to o sider trade-

offs et ee arious dista e dimensions – e.g. find lower costs

but incur greater cultural,

regulatory or time-zone distances.

Other distance dimensions

(e.g. cultural, regulatory, time-zone)

Country C

(e.g. India)

Country B

(e.g. Poland)

Country A (e.g. UK)

HQ

Tier 1 city(e.g. London)

Economic distance




D1D2 D4

EA

EB

EC


Tier 1 city(e.g. Bangalore)

X X

Tier 1 city(e.g. Krakow)

αβ

EHQ

EB1 & EC1

Nearshore Farshore

OFFSHORING OPTIONSNow, adopting a city-level perspective:

• The economic distances between

pairs of cities (here, London-Krakow

or London-Bangalore) may differ

significantly to distances between

ou tr a erages UK-Poland or UK-

India) – e.g. X < α, X < β

• Tier 1 cities in offshore locations

may have significantly higher costs

than predicted by between country

distance measures (EB1> EB, EC1> EC)

• In the example, Krakow is a more

appealing location choice than

Bangalore because the economic

distance from London of both cities

is similar (X) but Bangalore is more

dista t o other di e sio s > )


Country C

(e.g. India)

Country B

(e.g. Poland)

Country A (e.g. UK)

HQ


Tier 2 city(e.g. Belfast)

Economic distance


D1D2 D4



X


EHQ

EA1, EB1, EC1

EB2

EC2

• If sub-national economic distances within the home country are significant (X = EHQ-EA1), and

perhaps comparable to economic distances to Tier 1 offshore cities (X), a domestic (Tier 2)

inter-regional solution (here, Belfast) may be preferable to offshoring, since other distance

dimensions ill e egligi le o pared to the earshore a d farshore alter ati es ).

Nearshore Farshore



X X


Country C

(e.g. India)

Country B

(e.g. Poland)

Country A (e.g. UK)

HQ



Tier 2 city(e.g. Jaipur)

Tier 2 city(e.g. Poznan)

Economic distance


D1D2 D4



X Y Z


EHQ

EA1, EB1, EC1

EB2

EC2


may present a much more

attractive choice, due to greater

economic distances (Z > Y > X).

• Here, fir s a eed to trade-off economic distances (cost savings)

against other distant dimensions

relevant to offshoring ( and ).

Nearshore Farshore



X


Country C

(e.g. India)

Country B

(e.g. Poland)

Country A (e.g. UK)

HQ



Tier 2 city(e.g. Jaipur)

Tier 2 city(e.g. Poznan)

Economic distance


D1D2 D4



X Y Z


EHQ

EA1, EB1, EC1

EB2

EC2


may present a much more

attractive choice, due to greater

economic distances (Z > Y > X).

• Here, fir s a eed to trade-off economic distances (cost savings)

against other distant dimensions

relevant to offshoring ( and ).

Nearshore Farshore



?

?

X

• However, Tier 2 cities may also be

ore dista t than Tier 1 cities since

higher-order World Cities may

mitigate the liability of foreignness

(e.g. Bangalore vs. Jaipur)


Theme 3. Conceptualising location and the ‘firm-territory nexus’

a) Locatio ersus place

• The otio of lo atio i IB is mostly associated with countries as the spatial unit of analysis

• IB tendency to see geographi al u its as ou ded o tai ers (hence attention to corss-national distance or

difference) and internally homogenous (i.e. there is rarely attention to sub-national variation)

• Meyer et al (2011) on MNEs and local contexts (does local mean national here?) are seen as containers of :

– resour es that a e utilised firms

– i stitutio s that a a t as o strai ts o (or enablers of) firms strategies

• EG conception of place is quite different from the traditional IB view:

– Places are endowed with meaning and significance, have economically-significant cultural and

political aspects, are unique and specific, and are the product of the interaction of wider extra-

local processes and local specificities and history

Theme 3. Conceptualising location and the ‘firm-territory nexus’

b) The fir -territor e us : locatio choice a d strategic coupli g a d age c

• interactions between firms (e.g. MNEs) and particular places (locations) have been identified as an area of mutual interest to IB and EG

• described by some EGs using the phrase fir -territor e us Dicken & Malmberg, 2001).

• In IB, FDI decisions as a discreet (usually country) location choice for a particular project

• Places (locations) are implicitly viewed as passi e recipie ts of investment and MNEs are typically seen as making rational - or ore re e tl boundedly ratio al - decisions

• Within the EG (GPN approach), this process is encapsulated in the concept of:

strategic coupli g of glo al produ tio et orks a d TNC lead fir s ith regio al assets – an interfacing mechanism (Yeung 2009) mediated by the intervention of local institutional actors

i.e. there is greater re og itio of age a d the oupli g pro ess is see as ore o ple tha i IB

Towards an inter-disciplinary conceptualisation of service offshoring? 6 challenges across the two disciplines

1. (How) can EG studies of SO better incorporate appropriate theorisations of the firm (TNC) [and firm boundary decision

re offshoring mode - captive or outsourced?] and intra-firm network contexts? (drawing from work in IB & Subsid-Mgt)

2. (How) can IB studies of SO take better account of the extended network contexts within which SO takes place?

(drawing on EG, e.g. the GPN approach) - i.e. move beyond a focus on the discreet offshoring decision for a specific

project to take a more holistic perspective on these decisions within the overall GPN/GVC context (e.g. involving client

firms) and TNC global operations strategy

3. (How) can IB better incorporate a multi-scalar perspective on place and space into the analysis of SO? (perhaps

drawing on the relational EG literature?) methodological challenges relating to multiple spatial scale and quant

modelling? see work on FDI location at country and regional scale?

4. (How) can IB accommodate more sensitivity to local contexts (and their specificities, uniqueness and richness) into

studies of SO? [methodologically challenging?] partly relates to ontological differences - quest for generalizable theory

in case of IB and concern to understand variance and the specific in EG

5. (How) can IB better accommodate the role of agency (both firm actors and local institutional actors) into studies of SO?

6. How can EG incorporate a ore for al co ceptio of dista ce into its studies of SO? see Coe & Yeung 2015 book on

GPN theory - risk factors can be related to distance dimensions in IB and notion of MNE as a boundary-spanning multi-

site firm?

Towards an inter-disciplinary conceptualisation of service offshoring? 4 essential elements

It seems any inter-disciplinary framework ought to take account of 4 key elements:

1. Space (distance effects, and not just between-country distance)

2. Place (viewed in a multi-scalar and relational sense)

3. Organisation (including intra-firm and inter-firm network relations), and

4. Task attributes (e.g. contact intensity/interactiveness, repetitiveness/ degree of

standardisation, skill and knowledge content/innovativeness)

Documents

Comparing and Contrasting International Business …shura.shu.ac.uk/12185/1/Crone - AIB-UKI 2015 MMU (version...discrete services offshoring activities. Journal of International Business